Bitcoin Undervalued? | Flush VCs Still Making Web3 Bets

IN THE DEPTHS OF A BEAR MARKET

On early Thursday, ether and other struggling cryptocurrencies, including avalanche (AVAX), cosmos (ATOM) and solana (SOL) took a new hit, dropping another 10%. While bitcoin had also faced selling pressure, it held above the critical support of $28,800 and outperformed other coins by a big margin, according to Forbes Digital Assets markets analyst Omkar Godbole. This likely stemmed from a flight to safety—investors seeking refuge in the most liquid and largest cryptocurrency. The renewed risk-off came a day after minutes from the Federal Reserve’s May meeting showed officials in support of further increases in borrowing costs in June and July and outright sales of mortgage-backed securities. Since March, the central bank has raised rates by 75 basis points, putting pressure on asset prices.

LIGHT AT THE END?

Despite the crypto slump, JPMorgan issued a note Wednesday suggesting that bitcoin is massively undervalued. The bank is holding onto its fair value estimate of $38,000, which was approximately 28% higher than bitcoin’s price at the time of publication. JPMorgan also stated that it is replacing real estate with digital assets among its preferred alternative assets, along with hedge funds, citing “potential lagged repricing” in private equity, private debt and real estate. 

Source: Forbes Digital Assets, powered by Nomics.  Prices as of 11:00 a.m. on May 27, 2022

A16Z PLACES ANOTHER $1.5 BILLION BET ON WEB3

Amidst the carnage, one of crypto’s most influential venture capital firms is loading up. Andreessen Horowitz’s crypto unit, known as a16z crypto, announced on Wednesday it raised $4.5 billion for its fourth fund. The firm plans to allocate $1.5 billion of the funds to make seed investments in Web3, and $3 billion to make more traditional startup investments.

The fund, the largest individual crypto fund raised in venture capital so far, brings its total crypto funds raised to more than $7.6 billion. Leading the fund, as expected, are partners Chris Dixon, Sriram Krishnan, Arianna Simpson and Ali Yahya. JPMorgan’s strategists believe that “the trajectory for VC funding would be crucial in helping the crypto market to avoid the long winter of 2018/2019.”  

QUADRUPLING VALUATION IN 6 MONTHS—DESPITE CRYPTO BEAR

Markets are down, but blockchain companies can still attract capital at sky-high valuations. In the latest example, Ethereum developer StarkWare raised a $100 million Series D round at an $8 billion valuation. Led by Greenoaks Capital and Coatue, the round closed last week, just six months after the company’s Series C raise, which valued StarkWare at $2 billion.

The Tel Aviv, Israel-based company, founded by zcash co-creators, uses similar zero-knowledge (ZK) rollup technology to improve Ethereum’s efficiency and make it less traceable. It involves a computationally intensive process, which instead of adding transactions to the blockchain one by one, bundles thousands of transactions into a single batch away from Ethereum’s main layer. It then writes the entire batch to the blockchain using a small file that acts as “proof” of content in the batch. The technology is saving StarkWare’s clients significant amounts of capital required to use Ethereum’s network. In the 24 hours since the investment was announced zcash, which is based on the bitcoin blockchain, dropped 8.2%.”  

BLOCKCHAIN 50 SPOTLIGHT

CME Group: CEO Terry Duffy recently warned that FTX.US’s plans to start selling futures contracts on leverage could introduce new levels of risk to the U.S. economy. In October, the dollar value of Chicago Mercantile Exchange crypto futures reached $4.7 billion daily, temporarily making the CME the largest crypto derivatives exchange in the world. That same month the SEC approved the first U.S. bitcoin futures ETF, ProShares Bitcoin Strategy ETF (BITO), which now has $1 billion in assets. CME has launched crypto futures contracts for ethereum, as well as “micro” bitcoin and “micro” ethereum futures, tailored for those who want to invest $150,000 or less.  

ELSEWHERE

Wall Street Traditionalists Spar With FTX Over Crypto Derivatives [Bloomberg]

Tether Launches Stablecoin For Mexican Peso [The Defiant]

The Crypto Security Debate Goes To Court [The Wall Street Journal] 

Michael del Castillo
Senior Editor 
Forbes Digital Assets

Nina Bambysheva
Reporter
Forbes Money & Markets

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